By Tiya Lim, director of institutional advisory services with BAM Advisor Services and co-author of the book “The Only Guide You’ll Ever Need for the Right Financial Plan”

Social Security is one of the hottest and most widely debated topics in financial planning today. While the exact nature of benefits for future retirees may not be completely clear, it is an important piece of the retirement puzzle and should not be overlooked.

The basics
To understand how Social Security may fit into a retirement plan, it is first necessary to understand the basics of how it works. Currently, a single person may file for benefits between the ages of 62 and 70. However, a person’s age when filing will determine the amount of benefits he or she receives.

Social Security benefits are calculated to be actuarially neutral. Benefits are calculated based on average life expectancy, which means Social Security will pay a person the same amount of money no matter when he or she files for benefits, assuming he or she lives to the average age. This means a person filing earlier will receive a lower monthly payment amount, while a person filing later will receive a higher amount.

When is the best time to file?
One of the most common questions advisors are asked is “At what age is it best to file for Social Security?” While the answer varies tremendously based on each person’s individual situation, there are a few general guidelines people may consider.

If a person has no outside income and needs to take benefits early, then he or she can do so. However, if health and life situations permit, it may make sense to delay benefits. Keep in mind, the calculation for benefits is based on average life expectancy. If someone expects to live longer than average, delaying benefits and receiving a higher benefit will pay out more in the long run.

How does marriage affect Social Security benefits?
The information above is based on a single person. Married couples may have some additional benefit options. Married couples may be eligible for a dependent benefit, or, if one spouse passes away, a survivor benefit. 

Consider the case of a couple in which one spouse has not earned enough to qualify for Social Security independently. Under current laws, that spouse may be able to claim 35 to 50 percent of the other spouse’s full benefit when he reaches 62.

If both spouses worked and had Social Security benefits, couples may be able to take advantage of “double dipping.” Assume a wife is the primary earner, but the husband also earns an income. The wife could claim a spouse’s benefit as early as age 62,  but leave her own (higher) benefit alone until 70, which means she could claim a higher amount because she delayed filing for benefits.

Can you work and collect Social Security at the same time?
The simple answer here is yes.  People who work and earn over a certain income level can receive reduced benefits if they file before full retirement age (currently 67 if you were born in 1960 or later). However, once they reach full retirement age, they will get the withheld benefits back. In fact, someone who continues working may actually get higher benefits upon reaching full retirement age because he or she has continued working and putting money into the system, resulting in higher benefit levels.

The bottom line
The bottom line when it comes to Social Security is this: Do not look at Social Security benefits in isolation. Personal Social Security benefits should be just one piece of retirement planning, and this is why it is helpful to find a good financial advisor to work with. It is important to consider all factors, including spouse benefits, outside investments and one’s own personal situation. By making Social Security part of the bigger retirement picture, people can set themselves up for a more successful retirement.